Business Concepts: Specialization or the Full Product Line

Back in 1979 Michael Goold of BCG wrote a very interesting article about whether companies should specialize or offer a full set of product lines.

The dilemma? Specialization reduces cost, but reduces potential revenues because product offerings are limited. There are certain customers that want specific tailored products, but you can’t satisfy all of them because the cost of the additional products may be more than what they’re willing to pay.

So what did Michael recommend? The old consulting trick: the 80/20 rule.
He noticed that the majority of a companies’ business comes from a small minority of its products, so companies ought to define a core segment and specialize toward those customers.

From there, they can think about expanding into new segments if they think they can service these new segments at a lower cost than competitors.

It’s a great, empirical, battle tested insight that many forget.

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